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JGM, Solicitor
Category: Law
Satisfied Customers: 12195
Experience:  30 years as a practising solicitor.
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My wife has had an offer from a friend to buy into a small

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My wife has had an offer from a friend to buy into a small (sole trader) business. Information gathered tells me it is best to form a limited company rather than a partnership because of the liability protection. The initial set up costs were around £20K and she has agreed to invest a further £20k to improve the business and increase revenue. They wish to register a business, have limited liability and ensure that both parties has an equal share in the business. We have verbally agreed a 50/50 split on income from profits and if in the future the business is sold as a going concern split that 50/50 also. Having browsed the site you get some information but not specific advice to our circumstances. We need advice on what we do to make it legal and the documentation required. Although my background is finance and I can advise them to a degree on certain aspects of the business I require expert advice to get the set up correct for both of them and having used this site previously I found the advice valuable and specific. Hoping you can help. Regards Callum
Thank you for your question.
If limited liability is an important factor then there are two choices, a limited company or a limited liability partnership.
Thereafter which of these two vehicles are used will depend on what is the most tax efficient for the business concerned. Generally a limited company will pay corporation tax at a far lesser rate than an individual. Also an individual putting money into a business will be allocated a loan account so as to be able to draw on the loan they have made to the company thus making their drawings tax free. As the company earns further profits, it will continue to pay corporation tax. Dividends can be declared and added to your loan accounts which again is a tax efficient way of getting money out of the company.
Obviously a shareholders agreement to agree the division of shares etc would be drawn up and signed between the two shareholders.
Happy to discuss any issues arising.
Please leave a positive response so that I am credited for my time.
Customer: replied 3 years ago.

That was really helpful thankyou. Can you just explain a limited liability partnership - is it the 2 partners who carry equal liability for the business? If so where does the limited liability come in. I think the tax benefits may swing towards the limited company but I would just like to know all the facts before deciding.

Like a limited company, an LLP also has a separate and distinct legal personality which means that the personal assets of the partners are protected against creditors.
So it's a kind of hybrid legal entitly used often by professionals such as lawyers and accountants but more and more by other types of business.
Which one is chosen comes down to tax issues. I think that there are more tax advantages to a company rather than an LLP but specific tax advice shouod he sought from your accountant.
Customer: replied 3 years ago.

Thank you again. Next consulation is the accountant. I will of course leave a positive rating. Best wishes Callum

Thank you.
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